the 2011 microsoft economic impact study

The 2011 MICROSOFT ECONOMIC IMPACT STUDY Prepared for Microsoft Corporation February 2013 (v3)

by Theo S. Eicher Professor of Economics University of Washington Seattle, Washington [email protected]

The Microsoft Economic Impact Study 2011

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Table of Contents

Part I: National Economic Impact, 2011 .................................................... 2 EXECUTIVE SUMMARY ......................................................................................................... 2

Executive Commentary .............................................................................................. 3

INTRODUCTION ...................................................................................................................... 4 MICROSOFT CORPORATION .............................................................................................. 5

Background ................................................................................................................ 5 Current Operations .................................................................................................... 8

MICROSOFT IMPACT ON THE U.S. ECONOMY ............................................................... 9 Methodology and Terminology ................................................................................. 9 Microsoft’s Direct Economic Impact ........................................................................ 10 Total Impact of Microsoft on the U.S. Economy ...................................................... 11 Comparing National and Regional Multipliers ......................................................... 13

CONCLUSION ........................................................................................................................ 14

Part II: Washington State Economic Impact, 2011 .............................. 15 EXECUTIVE SUMMARY ...................................................................................................... 15

Executive Commentary ............................................................................................ 17

INTRODUCTION ................................................................................................................... 18 MICROSOFT CORPORATION ........................................................................................... 19

Background .............................................................................................................. 19 Current Operations .................................................................................................. 20

MICROSOFT IMPACT ON THE WASHINGTON STATE ECONOMY ........................ 21 Methodology and Terminology ............................................................................... 21 Microsoft’s Direct Economic Impact ........................................................................ 22 Total Impact of Microsoft on Washington State ..................................................... 23 Impact on Employment and Income Growth in Washington State ......................... 26

CONCLUSION ........................................................................................................................ 28

PART III: Impact Summary For Selected States, 2011 .................................. 29 California ............................................................................................................................... 29 New York State .................................................................................................................... 30

The Microsoft Economic Impact Study 2011 | National

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Part I: National Economic Impact, 2011

EXECUTIVE SUMMARY Part I of the document assesses the economic impact Microsoft Corporation on the U.S. economy in 2011. It is based on the most recent data available to date. The study was conducted by Professor Theo Eicher of the Department of Economics at the University of Washington. The methodology is based on the IMPLAN® (IMpact analysis for PLANning) data and software, which utilizes input-output analysis in combination with region-specific social accounting matrices and multiplier models.1

Employment • In 2011, Microsoft directly employed 51,952 employees in the U.S. • From 2007 to 2011, Microsoft increased its U.S. employment by 9.1 percent and

created 4,332 jobs in the U.S economy. Over the same period the U.S. lost 5.5 million jobs.

• Microsoft’s operations supported 495,223 jobs in the United States through its employment, compensation, and purchases of U.S. goods and services.

Microsoft’s Operations: The Direct Impact • In support of its operations, Microsoft purchased $8.7 billion of U.S. goods and

services from other U.S. businesses in 2011.2 • Microsoft provided $13.1 billion in total compensation (wages, non-wage

compensation, and stock compensation) to its U.S. employees in 2011. • The direct impact of Microsoft on the U.S. economy exceeded $21.8 billion, which

represents the sum of Microsoft’s wage compensation and purchases of U.S. goods and services.

Total Economic Impact of Microsoft • Microsoft’s $21.8 billion in U.S. expenditures, in turn, created job opportunities for

other U.S. businesses through the multiplier effect as Microsoft’s suppliers increased their employment and output. In addition, Microsoft employees spent their wages to increase demand for other US products.

• Microsoft’s operations generated a total impact of $101.4 billion in total U.S. industry output and added $60.2 billion to U.S. GDP. (Table 3)

• Microsoft’s total impact supported $34.6 billion in labor income (employee compensation and proprietor income) as well as 495,223 jobs. (Table 3)

• In 2011, Microsoft’s U.S. employment multiplier was 9.5 (=495,223/51,952), implying that every job at Microsoft generated 8.5 additional jobs elsewhere in the U.S. economy. Most of these jobs were well-paying jobs in service sectors. (Table 3).

1 The IMPLAN model is widely used in national, state, and regional impact analyses. For a list of IMPLAN clients, see https://implan.com/v4/index.php?option=com_content&view=article&id=751&Itemid=52 2 All data in this report are in 2011 dollars.


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Executive Commentary

This study measures Microsoft’s impact according to traditional input-output analysis. The direct impact of Microsoft—namely, its employment, wage compensation, and purchase of U.S. goods and services—is substantial. The company injected nearly $22 billion into the U.S. economy through its employee compensation of about $13 billion and its purchases of about $9 billion in U.S. goods and services (Table 2). Employment and purchases are distributed across the entire U.S. with some focus on Washington State where the company is headquartered (Figure 3).

Microsoft’s purchases of U.S. goods and services were not limited to the software industry, but were distributed over all major U.S. industry segments (Table 2). Microsoft’s demand for goods and services then generated additional jobs across industries, from construction to health care, through a so called multiplier effect. In addition, the 51,952 Microsoft employees in the U.S. used their incomes to purchase additional U.S. goods and services to create further demand for additional U.S. products. The IMPLAN model suggests that over $101 billion of U.S. industry output depended directly and indirectly on Microsoft. The strong support of industry output translates into Microsoft supporting just about 500,000 U.S. jobs.

Microsoft’s employment multiplier (9.5) is unusually high because the company pays uncommonly high wages and undertakes extraordinarily high expenditures per employee to support its operations. National multipliers account for multiplier effects within each state and between states. Therefore national multipliers tend to exceed multipliers that are calculated based on the impact in a single state.

While the findings of this study are impressive, they cannot provide a complete picture of the importance of Microsoft for the U.S. economy. Impact studies do not include, for example, the positive effects of the philanthropic impact that Microsoft (and Microsoft employees) generate in the United States. Since 1983, Microsoft and its employees have provided more than $5.55 billion in cash, services and software to nonprofits around the world through localized, company-sponsored giving and volunteer campaigns. Microsoft started its Employee Giving Campaign in 1983, an initiative that donates $17 for every hour an employee volunteers and also matches every employee contribution to charity, dollar-for-dollar. The company says 65 percent of employees have gotten involved, accounting for more than 35,000 participants, and Microsoft announced in 2012 that the program generated $1 billion for 31,000 nonprofits and community organizations.

In 2011 alone, employees donated over $100 million (including company match) while the company contributed cash and in-kind support donations of $949 million. Many current and former Microsoft employees also funded (and in some cases founded) major philanthropic organizations, such as the Bill and Melinda Gates Foundation.


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INTRODUCTION

Micro-soft, hyphenated in its early incarnation, was registered with the Secretary of State of New Mexico on November 26, 1976. The company was founded by Bill Gates and Paul Allen to provide a BASIC interpreter for the Altair 8800. The computer was produced by MITS (Micro Instrumentation and Telemetry Systems), located in Albuquerque, New Mexico. Microsoft’s gross income was $1 million in 1975, but by 1979 the company had grown to $3 million in revenues and it employed 30 people when it relocated to Washington State.

After two decades of extraordinary growth, Microsoft emerged as the world’s top producer of software for personal computers. By 2011, with 355 establishments around the world, the software giant had sales exceeding $72 billion and employed more than 90,000 employees worldwide. With 51,952 employees in the U.S. in 2011, Microsoft’s direct impact on the national economy is substantial; the company provides not only thousands of jobs, but it also supports many more U.S. jobs in other industries through its indirect impact on US business activity through the so called multiplier effect.

The objective of this impact study is to measure Microsoft’s economic impact on the U.S. economy in 2011. The first part of this study covers the following topics:

1. A brief history of Microsoft. 2. Microsoft’s current operations (production, employment, income). 3. The impact of Microsoft on the U.S. economy.

The study draws upon the analytical capabilities of the IMPLAN (IMpact analysis for PLANning) data and software, which uses input-output analysis in combination with region-specific social accounting matrices and multiplier models to provide accurate impact models. The model has been widely used by federal, state, and local governments, as well as numerous academic institutions and private corporations.3 Through its depiction of the interrelationships (purchases and sales) among the sectors of the U.S. economy (businesses, households, and government), the IMPLAN model has the ability to measure the impact of changes in one industry (such as computer software) on the rest of the economy.

This report begins with a brief history of the company. The discussion highlights Microsoft’s product development, its growth over the past 30 years, and its current operations. The centerpiece of the study presents estimates of how the company’s operations impact on the U.S. economy. Several sources of Microsoft’s impact are analyzed including employment, employee compensation, as well as purchases of U.S> goods and services. The study concludes with summary comments.

3 See https://implan.com/v4/index.php?option=com_content&view=article&id=751&Itemid=52


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MICROSOFT CORPORATION

Background Microsoft was founded as a partnership in Albuquerque, New Mexico, by William H. Gates and Paul G. Allen in 1975. In the following years, Microsoft released software versions of BASIC, FORTRAN, and COBOL. When the company moved to Washington in 1979, 30 employees generated annual revenues exceeding $3 million. In 1980, Microsoft developed versions of BASIC, FORTRAN, COBOL, and PASCAL for the IBM personal computer. Later that year, Microsoft signed another contract to provide the operating system for the IBM personal computer. Microsoft released DOS 1.0 for the IBM personal computer in 1981. When companies such as Compaq developed IBM-compatible computers, a multi-billion dollar market for Microsoft’s Disk Operating System (MS-DOS) was established. Recognizing its vast market potential, Microsoft incorporated in 1981 and established a national sales network.

The personal computer industry and Microsoft have grown at astonishing rates since 1981 (Figure 1). In 2011, with revenues of over $72 billion, Microsoft was the world’s largest producer of software for the personal computer. Over the years, the company has introduced not only a series of operating systems (e.g., MS-DOS in 1981, Windows 3.0 in 1990, Windows XP in 2001, Windows Mobile in 2003, Windows Vista in 2005, Windows 7 in 2009, and Windows 8 in 2012), but also numerous software applications. The most successful application has been Office, which is an integrated suite of programs for personal and business use.

Microsoft released Windows NT Advanced Server in 1993 and began to diversify its business to include server operating systems, and database software. As an application server, Windows NT Advanced Server also became a powerful platform for database servers such as Microsoft SQL Server, communications servers such as Microsoft SNA Server, and mail servers such as Microsoft Mail. In addition, the company started a number of important initiatives to leverage the internet, and to capture home entertainment markets, business enterprise software markets, hand-held device markets, and the Tablet market with the introduction of the Surface in 2012.

In 1995, Microsoft released Internet Explorer 1.0 and developed an internet strategy that added internet capabilities to all of its products. The year 2001 saw a new entertainment initiative with the unveiling of Xbox, followed by the invention of the Tablet PC in 2002. The 2003 Office suite offered new innovations, as did the launch of Xbox 360 in 2005. In 2009, the company introduced its own BING search engine and in 2011 core product lines included Windows & Windows Live Division, Server and Tools, Online Services Business, Microsoft Business Division, and the Entertainment and Devices Division. In 2012, Microsoft opened a new era and produced its first computer with the Surface tablet.


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Figure 1

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As the company’s business expanded globally, it devoted an increasing proportion of its personnel to marketing and service, leading to a rapid expansion of its global workforce. (Figure 2). About 57 percent of Microsoft’s global workforce is employed in the U.S., with 51,952 employees in 42 states. In 2011 the company also purchased significant quantities of U.S. goods and services from U.S. business in support of its operations (including capital expenditures). About $1 billion in goods and service purchases were undertaken in California and New York and over $3.5 billion in Washington State. Despite the large expenditures in New York, California and Washington, Microsoft purchases were distributed broadly across U.S. states. While Microsoft undertook significant purchases in all states, over $100 million each were spent in 19 states.

Figure 3 MICROSOFT U.S. EMPLOYMENT AND EXPENDITURES BY STATE (2011)

Employment Expenditures Employment Expenditures

Alabama 11 $1,731,296 Montana 0 $2,753,045Alaska 0 $37,475 Nebraska 23 $2,258,873Arizona 165 $263,944,939 Nevada 249 $32,506,365Arkansas 22 $4,335,087 New Hampshire 1 $6,869,709California 2,642 $1,653,609,556 New Jersey 157 $123,828,964Colorado 264 $130,935,983 New Mexico 0 $187,757Connecticut 36 $28,395,181 New York 719 $971,255,718Delaware 1 $1,214,588 North Carolina 1079 $171,482,281District of Columbia 37 $120,854,790 North Dakota 886 $12,323,536Florida 106 $203,084,225 Ohio 138 $83,975,529Georgia 283 $179,589,177 Oklahoma 12 $3,321,787Hawaii 7 $601,574 Oregon 26 $133,446,720Idaho 71 $5,784,344 Pennsylvania 139 $124,416,664Illinois 513 $427,965,027 Rhode Island 0 $677,697Indiana 40 $16,092,194 South Carolina 2 $4,554,079Iowa 22 $41,102,498 South Dakota 0 $320,861Kansas 45 $2,126,668 Tennessee 64 $22,307,057Kentucky 5 $2,952,547 Texas 1460 $567,261,080Louisiana 0 $699,725 Utah 65 $61,818,443Maine 0 $849,156 Vermont 0 $3,596,913Maryland 452 $259,395,567 Virginia 535 $232,732,787Massachusetts 786 $310,173,500 Washington 40309 $3,765,845,981Michigan 179 $66,486,164 West Virginia 4 $8,694,476Minnesota 261 $98,999,038 Wisconsin 37 $20,761,765Mississippi 3 $7,482 Wyoming 0 $29,750Missouri 96 $179,083,065 Puerto Rico 0 $5,567,304

Source: Microsoft. Expenditures here include capital expenditures.


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Current Operations Headquartered in Redmond, Washington, Microsoft has offices in 112 countries. Global revenues were $72.1 billion in 2011 and 57 percent of its global labor force (51,952 of 90,400) was located in the United States. Microsoft employees in the U.S. received $10.9 billion in gross wage compensation (wages and non-wage compensation), or $13.1 billion in total wage compensation (gross wage compensation plus stock compensation). Average Microsoft gross wage compensation was $209,819 per U.S. Microsoft employee.

Table 1

MICROSOFT REVENUES, EMPLOYMENT, AND WAGE COMPENSATION, 2011

Global Revenues (Millions $) $72,052 Global Employment 90,400 U.S. Employment 51,952 Other 38,448 U.S. Gross Wage Compensation* (Millions $) $10,901 Gross wage compensation per U.S. employee $209,819

*Includes wages, salaries, and non-wage benefits, but excludes stock compensation. Source: Microsoft.

Summary: Employment & Compensation

• In 2011, Microsoft employed 51,952 workers in the U.S. and 90,400 workers globally. The largest share of Microsoft’s workforce is in the U.S., where the company employs workers in 42 states.

• Microsoft employees in the U.S. received $10.9 billion in gross wage compensation (wages and non-wage benefits), on average $209,819 per U.S. employee.


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MICROSOFT IMPACT ON THE U.S. ECONOMY

Methodology and Terminology As the world’s leading producer of software for personal computers, Microsoft plays a critical role in the U.S. economy. In 2011, Microsoft’s job impact on the U.S. economy extended well beyond the 51,952 U.S. workers that the company employed. Microsoft’s payroll and the associated operating expenditures created employment opportunities for a multitude of businesses around the country.

The direct impact of Microsoft is generated by its own production, employment, and employee compensation. As the number of Microsoft employees and their compensation increases, one can observe a substantial rise in consumers’ purchases across the U.S. economy. In addition, Microsoft’s production structure requires more than just workers. Microsoft operations require U.S. inputs that create additional demand for goods and services (e.g., paper products, computer repair, and financial, legal, and real estate services).

The direct impact of Microsoft gives rise to an indirect impact. In 2011, Microsoft purchased $8.7 billion in goods and services in the United States. These goods and services had to be produced, which caused other U.S. firms to increase their own output to meet the increased demand. In turn, these firms then hired additional workers and increased demand for their suppliers’ products. These intra-industry transactions are captured by the notion of the indirect impact.

Finally, there exists an induced impact generated by Microsoft, which measures the effects of the changes in household income: Microsoft employees and the employees of Microsoft’s suppliers use their wages to undertake further expenditures in the U.S. economy in restaurants, shops, etc. This demand, fueled by the compensation that Microsoft employees receive, sets in motion additional U.S. economic activity in the U.S. The total impact is then defined as the total changes to the U.S economy as the result of Microsoft’s existence (total impact = direct impact + indirect impact + induced impact).

To capture the total impact requires a model that reflects the intricate input-output structures of an economy, where purchases by one firm (inputs into its production process) represent the output of other firms upstream in the supply chain. An input-output model represents a mathematical description of the interdependencies of all inputs and outputs used by all firms in all sectors of the economy. For example, an input-output model of the steel and automobile sectors includes the value of steel produced and sold to regional auto manufacturers, as well as the value of cars produced in the region and sold to the region’s steel producers.

The total impact exerted by one firm on the entire U.S. economy can then be calculated by accounting for the value of its total output and dividing it into all inputs required. These inputs are then traced back to all of the supply firms through a system of inter-


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industry sales. How many inputs a given firm demands from other industries depends on the specific industry type. The primary use of an input-output model is then to estimate the total impact of a firm that is created by its demand for input and labor. The term “impact analysis” is used to characterize such a study.

The ratio of the total impact on the economy relative to the direct impact is called a multiplier. Below we focus on Microsoft’s impact in terms of its employment multiplier, which indicates how many jobs Microsoft supports in the U.S. economy for every worker that the company directly employs. The input-output model provides estimates as to how many jobs are created in specific sectors as well as the labor income associated with the added employment.

Microsoft’s Direct Economic Impact The direct impact of Microsoft on the U.S. economy is generated by its employment, the compensation of these employees, and Microsoft’s expenditures on U.S. goods and services. This direct economic impact is detailed in Table 2.

Table 2 DIRECT IMPACT OF MICROSOFT ON THE U.S. ECONOMY, 2011 (Expenditures by Microsoft’s U.S. Establishments only)

Millions of Dollars DIRECT IMPACT $21,816 Total wage compensation* $13,118 Spending on U.S. goods/services $8,699 Goods $1,375 Construction $203 Paper, printing, and publishing $714 Nonelectrical machinery (e.g., office machine parts) $54 Electrical machinery (e.g., electronic components) $249 Communications (e.g., telephone and internet) $81 Utilities (gas, water, and electricity) $73 Services $7,324 Finance and insurance services $9 Real estate services $357 Computer services (e.g., contract programming) $3,332 Employment services (e.g., temporary employment) $1 Other business and professional services $3,624

*Includes wages, salaries, non-wage benefits, and stock compensation. Source: Microsoft.


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Most of Microsoft’s U.S. purchases can be attributed to the services sector. Major service sector expenditures were undertaken in the computer services industry (contract programming), valued at $3.3 billion, while $3.6 billion was spent on other business services. Notable procurements of U.S.-produced goods included $714 million in the printing sector, and $249 million that were spent on U.S. electronic and communication equipment.

Major Findings I.1: Microsoft’s U.S. Purchases and Direct Impact

• In 2011, Microsoft purchased $8.7 billion in goods and services from U.S. establishments, or $167,437 per U.S. Microsoft employee (Tables 1, 2).

• Given its $13.1 billion in total wage compensation to employees, and the $8.7 billion in purchases of U.S. goods and services, Microsoft directly injected over $21.8 billion into the U.S. economy (Table 2).

Total Impact of Microsoft on the U.S. Economy The total impact of Microsoft on the U.S. economy is derived by tracing out how the direct impact (detailed in the previous section) generates further economic activity, employment and income in the U.S. Table 3 reports Microsoft’s total impact on the U.S. economy, taking into account the direct, indirect, and induced effects defined in the methodology section.

The first three rows in Table 3 present the total impact of Microsoft on aggregate measures of economic performance: U.S. Income (GDP), labor income, and employment. In addition, the table details the total impact of Microsoft on each industry’s employment and output.

Three key figures emerge from the analysis. First, the total impact of Microsoft on the U.S. economy results in a $60 billion contribution to U.S. GDP. Second, Microsoft generated a total of $35 billion in labor income. Third, and perhaps most importantly, Microsoft’s contribution to U.S. employment resulted in 495,223 jobs. These workers were employed either directly by Microsoft or by firms that supplied goods and services that were demanded by Microsoft or its employees.

Table 3 also highlights that Microsoft’s impact is distributed over the entire range of sectors in the U.S. economy. Clearly the information technology sector is profoundly impacted with 66,037 jobs, but other sectors also experience large impacts, such as administrative services (101,725) and professional, scientific/technology services (46,496). The sum of sectoral output increases exceeds $101 billion, which is greater than the GDP impact since final goods in some sectors become intermediate goods to other sectors. GDP is a value added concept, which is the difference between sectoral output and the cost of intermediate inputs.


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Table 3 TOTAL IMPACT OF MICROSOFT ON THE U.S. ECONOMY, 2011 (Microsoft’s U.S. Operations and Expenditures on U.S. Good/Services)

Total Impact on U.S. GDP, Labor Income, and Employment Gross Domestic Product (Millions $) $60,202 Labor Income (Millions $) $34,629 Employment 495,223 Total Impact by Sector Employment Output Ag, Forestry, Fish & Hunting 4,899 $644,246,777 Mining 1,381 $631,703,118 Utilities 1,120 $959,009,341 Construction 5,113 $553,494,470 Manufacturing 17,790 $8,845,900,863 Wholesale Trade 11,333 $2,068,098,090 Retail trade 37,993 $2,635,113,480 Transportation & Warehousing 13,703 $1,779,990,452 Information 66,037 $45,477,482,061 Finance & insurance 29,257 $7,111,936,573 Real estate & rental 23,543 $6,876,356,789 Professional, scientific & tech services 46,496 $6,492,257,777 Management of companies 8,390 $1,741,265,991 Administrative & waste services 101,725 $5,811,553,620 Educational services 8,047 $490,821,179 Health & social services 40,137 $3,723,992,168 Arts, entertainment & recreation 11,709 $772,125,170 Accommodation & food services 40,127 $2,643,697,788 Other services 21,460 $1,460,564,868 Government & non NAICs 4,963 $655,833,238

Sources: Microsoft, IMPLAN, and author’s calculations. Labor Income includes all forms of employment income, including employee compensation (wages and benefits) as well as proprietor Income.

A key measure used to assess economic impact is the employment multiplier, which indicates how many additional jobs are supported in the economy for every employee that a company hires. The Microsoft national employment multiplier is 9.5 (=495,223/51,952) in 2011. It implies that 8.5 additional jobs are created for each Microsoft employee. The Microsoft employment multiplier is high compared to those of other companies or industries. Employment multipliers for typical industries range from 2 (agriculture) to 4 (aerospace).

The multiplier increased from 8 to 9.5 since 2009. This increase is due to two factors. First the U.S. economy relies more and more on information technology. Hence the


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inputs and labor that information technology companies like Microsoft source generate a greater impact in the U.S. economy. Secondly, Microsoft increased its good/service purchases as well as its wage compensation substantially since 2009 (by $2.4 billion in real terms). This increase in purchases and compensation augmented Microsoft’s impact on the U.S. economy. Since Microsoft employment has been flat since 2009, the same number of workers generated greater impact, hence the employment multiplier increased. Microsoft’s employment multiplier is unusually high since the company pays uncommonly high wages and undertakes extraordinary high expenditures per employee to support its operations.

Major Findings I.2: Microsoft’s Total Impact on Employment

• 495,223 jobs in the U.S. depended upon Microsoft in 2011. The jobs impact was due to Microsoft’s direct impact of 51,952 jobs, plus the additional 443,271 jobs created by the indirect, and induced multiplier effects.

• The Microsoft national employment multiplier was 9.5 (=495,223/51,952), implying that for every Microsoft employee there were 8.5 additional jobs supported in the U.S. economy.

Comparing National and Regional Multipliers Microsoft’s national employment multiplier exceeds its regional multiplier. The fact that national multipliers exceed regional multipliers is, by definition, true in all impact analyses.

Regional multipliers (for example the employment multiplier for Washington State) measure only the impact of a company in one region. National multipliers (for all 50 states) account for the multiplier effects within each state but also between states. For example, when Microsoft operations in Redmond, WA, require purchasing a car that was made in North Carolina, the impact is not counted to affect Microsoft’s multiplier in Washington State. Microsoft’s Washington State multiplier considers only the impact on goods/labor in the Washington State economy. 4

For the national impact, all purchases made by Microsoft’s Redmond, Washington operations in the U.S. become part of the impact and multiplier. The national model then traces the impact of the car bought in Redmond, but produced in North Carolina,

4 The multiplier increases with (a) the overall size and economic diversity of the study area. Areas with large, diversified economies have high multipliers as households and businesses can find most of the goods and services they need locally. Hence impact dollars will be multiplied and generate more local jobs. More goods will be found “locally” if the study area is the entire U.S. as compared to a study are the size of Washington State and (b) a sector’s output per worker. The greater the output per worker, the more wealth is generated per worker, which increases the indirect and induced (employment) effects. As induced and indirect effects increase relative to the direct employment, the multiplier rises.


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and adds it to Microsoft’s national employment impact and multiplier. Therefore national impacts always exceed regional impacts, and the national employment multiplier always exceeds the regional employment multiplier.

CONCLUSION

Through its sizable U.S. employment, its significant employee compensation, as well as its purchases of U.S. goods and services, Microsoft generated a profound impact on the structure and performance of the U.S. economy. While its software and business solutions exerted a distinct effect on U.S. productivity over the past 35 years, the impact analysis quantifies only the specific and measureable economic impact of Microsoft.5

It is notable that Microsoft’s operating expenditures include purchases from businesses in 49 U.S. states to create important, additional demand for local U.S. suppliers. To meet this demand, these local businesses, in turn, expand their employment to create additional jobs in the U.S. economy. Microsoft’s total impact on U.S. employment can be estimated to exceed 490,000 jobs, contributing over $60 billion to U.S. GDP.

Note that the above derived impact is based on standard input-output methodology, which reflects only the impact of Microsoft’s production operations on the rest of the economy. The methodology does not account for the economic benefits that Microsoft’s software generates for users of its products.

5 Jorgenson, Ho, and Stiroh provide estimates of the U.S. productivity impact of ICT in the Journal of Economic Perspectives, Winter 2008, pp. 3–24. Eicher and Strobel refine the analysis to document the impact of Software on an economy in Cesifo Economic Studies, September 2008, pp. 386-414.

The Microsoft Economic Impact Study 2011 | Washington State

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Part II: Washington State Economic Impact, 2011

EXECUTIVE SUMMARY

The second part of the impact study assesses Microsoft’s economic impact on Washington State in 2011.

Employment • In 2011, Microsoft directly employed 40,309 employees in Washington State.

This represents an increase of 998 employees over 2008. • In 2011, Microsoft was the second largest private employer in Washington

behind Boeing, which had a workforce of 81,978.6 • From 2008 to 2011, Microsoft created 994 new jobs at its establishments in King

County, while the county as a whole experienced a decline of 52,091. Washington State’s employment dropped by 106,151 jobs over the same period.

• Through its employment, compensation, and in-state purchases, Microsoft’s operations in Washington State supported 242,966 jobs.

Labor Income • Microsoft’s Washington State employees received $7.50 billion in gross wage

compensation (wage and non-wage benefits), and $8.97 billion in total compensation (gross wage compensation and stock compensation) in 2011. For comparison purposes, total employee compensation of the entire Washington aerospace sector was $10.32 billion in 2011.

• Per employee, Microsoft’s gross wage compensation was $184,847, which compares to an average of $118,651 per aerospace employees in Washington State in 2011.

In-State Purchases • Microsoft purchased $2.55 billion in goods and services from Washington

producers (Table 2), which is equivalent to $63,211 per Microsoft employee.

6 http://www.boeing.com/aboutus/employment/employment_table_2011.html. Official Boeing statistics include “contingent” labor while Microsoft employment refers to actual, non-contract employment.


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Economic Impact • Microsoft’s employment together with its purchases of locally produced goods

and services injected a total of $11.5 billion into the Washington State economy (Table 5). These expenditures, in turn, created job opportunities in other businesses in Washington State through the multiplier effect.

• The total impact of Microsoft’s 2011 operations in Washington State generated

$34.3 billion (9.8%) of Washington State’s Gross State Product. (Table 6). • Microsoft generated a total of $19.37 billion in labor income (employee

compensation and proprietor income) in Washington State, which constituted 8.8 percent of state’s entire labor income in 2011. (Table 6)

• The total economic impact of Microsoft amounted to 242,966 jobs or 8.0 percent

of total Washington State employment in 2011. (Table 6) • From 1990 to 2011, Washington employment grew at a compounded annual

rate of 1.25 percent, while Microsoft employment expanded at a rate of 11.63 percent (Table 7, Figure 5). Over this period Microsoft experienced about ten-fold increase in its impact on Washington State employment. In 1990, its impact was 25,270 jobs, which increased to 194,620 jobs in 2004 and 242,966 jobs in 2011.

• Since 1990, Microsoft has been the single largest contributor to economic

growth in Washington; its impact on the state accounted for 31.1 percent of the total gain in state employment. (Table 7)

• Microsoft’s employment multiplier was 6.01 (=242,966/40,309) in 2011, implying

that every job at Microsoft supported 5 jobs elsewhere in the Washington State economy. Microsoft’s employment multiplier is high because the company pays uncommonly high wages and undertakes extraordinary high expenditures per employee to support its operations.

• The Microsoft employment multiplier has been increasing substantially over time

to match the presence of the company in the state. In 1996, the multiplier was 4.4, from which it grew to 5.1 in 2004, to reach 6.01 in 2011. The Microsoft employment multiplier is high compared to those of other companies or industries. Regional employment multipliers for typical industries range from 2 (agriculture) to 4 (aerospace).


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Executive Commentary There has been a distinct increase in the direct impact of Microsoft on the Washington economy since 2004. The increase is due to two factors: first, the company’s total compensation paid to its Washington State employees increased sharply, second, Microsoft’s purchases of Washington State goods and services nearly doubled since 2004. From 2004 to 2011, Microsoft added 12,069 jobs to its Washington State operations, generating an additional $1.9 billion in real gross wage compensation, and increasing its purchases of local goods and services in real terms by $1.08 billion. Most notably, while the Puget Sound region and Washington State suffered an economic contraction in 2008, Microsoft expanded its operations from 2008 to 2011. Microsoft’s employment increase (998 jobs) and its purchasing increase ($309 million) thus acted as crucial stabilizers of the Washington State economy during the recession. Over 40,000 employees work at Microsoft’s Washington State facilities, who earn an average gross wage compensation of $184,847. Microsoft’s employment and compensation, combined with over $2.5 billion in local purchases, generated a powerful multiplier effect that supported a total 242,966 jobs and $34.4 billion in Washington’s Gross State Produce. The sum of the total industry output that Microsoft generated in Washington State in 2011 is valued at $52.4 billion. While these findings are impressive, they do not provide a complete picture of the importance of Microsoft for the Washington State economy. This impact studies does include, for example, the positive effects of Microsoft philanthropy. In 2011, Microsoft and its employees supported over 3,200 organizations in Washington State. Corporate giving totaled $44.7 million and employee giving (plus Microsoft matching funds) equaled $52.6 million, to yield a $97.3 million in charitable contributions in Washington State. In addition, many current and former Microsoft employees have funded (and in some cases, founded) philanthropic organizations with a local focus, such as the Paul G. Allen Family Foundation as well as the Bill and Melinda Gates Foundation. Impact studies do not account for knowledge spillovers produced by the highly skilled workers that have been attracted to the state either directly or indirectly by Microsoft. As the “anchor tenant” of Washington State’s information technology cluster, Microsoft provides substantial knowledge and productivity spillovers to other firms and startups. Like a magnet, Microsoft has drawn a large number of software companies to the area, which now comprises one of the most vibrant software industry clusters in the nation. A 2009 study by the Milken Institute ranks U.S. areas by their “technology capacity,” documenting the extraordinary dominance of the Seattle software cluster noting:

“…perhaps the most compelling example of its prowess in software can be found in the observation that Seattle captures 23.4 percent of wages in this field in all of North America. The strength of industry titan Microsoft and its affiliated companies gives the Seattle metro area a decisive lead in this category.” 7

7 Source: DeVol, R. C., K. Klowden, A. Bedroussian, and B. Yeo, (2009). “North America’s High-Tech Economy: The Geography of Knowledge-Based Industries,” Milken Institute.


18

INTRODUCTION

When Microsoft moved to Washington in 1979, it was a $3 million company employing 30 people. After two decades of extraordinary growth, Microsoft emerged as the world’s top producer of software for personal computers. As the company expanded globally over the next three decades, it devoted an increasing proportion of its personnel to marketing and service, leading to a rapid expansion of its global workforce (Figure 2, above). By 2011, with 355 establishments around the globe, the software giant’s sales exceeded $72 billion and it employed over 90,000 people worldwide. While Microsoft’s employment growth in Washington state has been extraordinarily rapid since 1983, the pace has recently stabilized as the company emerged as the state’s second largest employer. Today, about one-third of Microsoft’s operations are located at its Redmond headquarters, which employs about 31,575 people. Other important Microsoft establishments in the state are located in Bellevue, Issaquah, and Seattle (Figure 4).

Microsoft’s impact on the local economy is substantial. Like Boeing and Weyerhaeuser, Microsoft employs not only thousands of people but also supports many more local jobs in other industries through its direct indirect impact on business activity in the state (the so-called multiplier effect).

The objective of this portion of the impact study is to measure Microsoft’s economic impact on Washington. The study covers the following topics:

1. A summary of Microsoft’s history and current operations in Washington State (production, employment, income).

2. The impact of Microsoft on the Washington State economy. 3. The company’s contribution to Washington State’s economic growth.

The study draws upon the analytical capabilities of the IMPLAN (IMpact analysis for PLANning) data and software, which uses input-output analysis in combination with region-specific social accounting matrices and multiplier models to provide accurate regional models.8 Through its depiction of the interrelationships (i.e., purchases and sales) among the sectors of the state economy (businesses, households, and government), the model has the ability to measure the impact of changes in one industry (such as computer software) on the rest of the Washington State economy.

The centerpiece of this portion of the study presents estimates of the company’s impact on the Washington State economy. Several sources of Microsoft’s impact are analyzed including employment, employee compensation, as well as purchases of goods and services in the region. This section of the report concludes with summary comments.

8 The IMPLAN model has been widely used in Washington State. For a list of WA and U.S. IMPLAN clients see https://implan.com/v4/index.php?option=com_content&view=article&id=751&Itemid=52


19

MICROSOFT CORPORATION

Background Microsoft was founded as a partnership in Albuquerque, New Mexico, by William H. Gates and Paul G. Allen in 1975. When the company moved to Washington State in 1979, 30 employees generated annual revenues exceeding $3 million. Microsoft incorporated in 1981 and established a national sales network.

The personal computer industry and Microsoft have grown at astonishing rates since 1981. The software industry’s revenues climbed at a 25 percent annual rate, while Microsoft sales soared at rate of 35 percent (Figure 1). In 2011, with revenue of over $72 billion, Microsoft was the world’s largest producer of software for the personal computer.

As the company expanded globally, it devoted an increasing proportion of its personnel to marketing and service, leading to a rapid expansion of its global workforce (Figure 2). Nevertheless, Microsoft’s employment growth in Washington State continues to be substantial, and the company has emerged as the state’s second largest employer. Microsoft maintains one major campus in Redmond, which employs about 32,000 people. Other major Microsoft establishments in the state are in Bellevue, Issaquah, and Seattle (Figure 4).

Figure 4

MICROSOFT WASHINGTON EMPLOYMENT, 2011 By Establishment Location By Place of Employee Residence

1,782

6,334

31,575

16143459

RedmondIssaquahBellevueSeattleOther WAKirkland

6,235

7,124

3,435 8,893

14,622

Redmond

Other KingCountyBellevue

Seattle

Other WA Source: Microsoft.


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Current Operations Headquartered in Redmond, WA, Microsoft Corporation maintains offices in 112 countries. Global revenues were $72.05 billion in 2011 and 45 percent of its global labor force was located in Washington State. Microsoft employees in Washington State received $7.45 billion in gross wage compensation (wage and non-wage benefits), and $8.97 billion in total compensation (gross wage compensation plus stock compensation) in 2011. In Washington State, Microsoft employees’ average gross wage compensation was $184,847 that year, while the total compensation per employee was $222,442. By comparison, the average aerospace employee gross wage compensation in Washington State was $118,651 in 2011.

Table 4

MICROSOFT REVENUES, EMPLOYMENT, AND COMPENSATION, 2011 Global Revenues (Millions $) $72,052 Employment 90,400 Washington establishments 40,309 All other establishments (U.S. and foreign) 50,091Gross Wage Compensation Washington State* (Millions $) $7,451 Gross wage compensation per employee in WA $184,847 *Washington only; includes wages, salaries, and non-wage benefits, but excludes stock compensation. Source: Microsoft.

Summary: Employment & Compensation

• From 2008 to 2011, Microsoft’s employment in Washington State grew by 998 employees, or 2.5 percent, at a time when King County employment contracted by 51,983 and Washington State employment contracted by 106,151.

• Microsoft’s Washington State employees received $7.45 billion in gross wage compensation (wage and non-wage benefits, not including stock options). Average gross wage compensation was $184,847 per worker.


21

MICROSOFT IMPACT ON THE WASHINGTON STATE ECONOMY

Methodology and Terminology As the world’s leading producer of software for personal computers, Microsoft plays a critical role in the economies of Washington State and King County. In 2011, Microsoft’s job impact in Washington State extended well beyond its 40,309 employees in the region. The company’s operating expenditures that created demand for local goods as well as its substantial payroll created additional employment opportunities for a multitude of businesses around the state.

As noted in Part I, the immediate or direct impact of Microsoft is generated by its own production, operation, employment, and employee compensation. As the number of Microsoft employees increases and the total compensation Microsoft pays out rises, one can observe a substantial increase in consumers’ purchases in the state. In addition, Microsoft’s production structure requires more than just workers. Microsoft operations require local inputs that in turn generate additional demand for local goods and services (e.g., paper products, computer repair, and financial, legal, and real estate services).

The direct impact of Microsoft gave rise to an indirect impact. In 2011, Microsoft purchased $2.55 billion in goods and services from businesses in Washington State. These goods and services had to be produced, which caused local firms to increase their own output to meet demand. In turn, these local firms hired additional workers and increased demand for their suppliers’ products. These intra-industry transactions are captured by the notion of indirect impact.

Finally, there is an induced impact generated by Microsoft, which measures the effects of the changes in household income: Microsoft employees and the employees of Microsoft’s suppliers use their wages to undertake expenditures in the local economy ranging from restaurants to shops, etc. This demand, fueled by the compensation that Microsoft employees receive, sets in motion further rounds of economic activity in Washington State. The total impact is then defined as the total change to the Washington State economy as a result of Microsoft’s existence (direct impact + indirect impact + induced impact = total impact).

To capture the total impact requires a model that reflects the intricate input-output structures, where purchases by one firm (inputs into its production process) represent the output of other firms (upstream in the supply chain). An input-output model represents the mathematical description of the interdependencies of all inputs and outputs used by all firms in all sectors. For example, an input-output model of the steel and automobile sectors includes the value of steel produced and sold to regional auto manufacturers, as well as the value of cars produced in the region and sold to the region’s steel producers.


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The total impact of a firm on the local economy can then be calculated by accounting for the value of the firm’s total output and dividing it into all inputs required. These inputs are then traced back to all of suppliers in the region that produced them. How much a firm or an industry demands in terms of inputs from other industries depends on the specific industry type, its output, and its employment levels. The primary use of an input-output model is to estimate the total impact that was created by the demand of a firm or industry. The term “impact analysis” is used to characterize such a study.

The ratio of the total impact on a regional economy relative to the direct impact is called a regional multiplier. Below we measure Microsoft’s impact in terms of the regional employment multiplier, which indicates how many jobs Microsoft supports in the regional economy for every worker that the company directly employs. The input-output model provides estimates as to how many jobs are created in specific sectors, and the wages associated with the added employment.

Microsoft’s Direct Economic Impact The direct impact of Microsoft on Washington State is generated by its employment of local workers, their employee compensation, as well as the expenditures on goods and services in the state. This direct economic impact is detailed in Table 5.

Table 5

DIRECT IMPACT OF MICROSOFT ON THE WASHINGTON ECONOMY, 2011 (Expenditures by Microsoft’s Washington Establishments in Washington State)Millions of Dollars

DIRECT IMPACT $11,514 Total wage compensation* $8,966 Spending on local goods/services $2,548 Goods $179 Construction $32 Paper, Printing, and Publishing $75 Nonelectrical machinery (e.g., office machine parts) $5 Electrical machinery (e.g., electronic components) $40 Communications (e.g., telephone and internet) $11 Utilities (gas, water, and electricity) $17 Services $2,369 Finance and insurance services $9 Real estate services $76 Computer services (e.g., contract programming) $1,557 Employment services (e.g., temporary employment) $1 Other business and professional services $726

* Includes wages, salaries, non-wage benefits, and stock compensation. Source: Microsoft.


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Most of Microsoft’s expenditures in Washington State were purchases of services, with expenditures on computer services (contract programming) totaling $1.6 billion, followed by other business services valued at $726 million. Notable procurements of locally produced manufactured goods included $32 million for construction, $75 million for printing (e.g., books and other publications), and $40 million for electrical machinery (e.g., computer parts and repair).

Major Findings II.1: Microsoft In-State Purchases and Direct Impact

• In 2011 Microsoft purchased a total of $2.55 billion in goods and services from Washington State businesses, or $63,211 per Microsoft employee (Tables 4, 5).

• Given its $8.96 billion in total wage compensation to employees and the $2.55 billion in purchases of local goods and services, Microsoft directly injected over $11.5 billion into the Washington economy in 2011 (Table 5).

Total Impact of Microsoft on Washington State Table 6 reports Microsoft’s total impact on the Washington economy, taking into account the direct, indirect, and induced effects described above. The first column shows the performance of the Washington economy in 2011 with Microsoft included. The second column is a projection of what the economy would have looked like without Microsoft. The difference between the two columns is the total impact that Microsoft exerted on the Washington economy as expressed in column 3 of Table 6. The fourth column shows Microsoft’s impact as a percentage of Washington’s economic activity.

The impact study reveals that Microsoft’s total impact represents 9.8 percent of Washington’s Gross State Product and generated 8.8 percent of the state’s labor income in 2011. Microsoft’s impact created not only additional income in the state, but also additional employment. 242,966 workers in the state of Washington depended on Microsoft through its direct impact of 40,309 jobs, plus an additional 202,657 jobs created by the indirect and induced multiplier effects. This multiplier effect is the result of the $11.5 billion in operating expenditures that Microsoft spent in Washington State in 2011.


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Table 6 TOTAL IMPACT OF MICROSOFT ON THE WASHINGTON ECONOMY, 2011 Microsoft’s WA Establishments’ Operations and Expenditures on WA Good/Services

With

MicrosoftWithout

MicrosoftTotal

Impact % of WATOTAL IMPACT ON INCOME AND EMPLOYMENT Gross state product (Millions $) $350,008 $315,633 $34,374 9.8% Labor Income (Millions $) $220,237 $200,920 $19,317 8.8% Total Employment 3,050,198 2,807,232 242,966 8.0% TOTAL IMPACT ON EMPLOYMENT BY SECTOR All Sectors 3,050,198 2,807,232 242,966 8.0% Ag, Forestry, Fish & Hunting 117,375 116,302 1,074 0.9% Mining 6,600 6,472 128 1.9% Utilities 5,269 5,043 226 4.3% Construction 201,476 199,511 1,965 1.0% Manufacturing 285,083 282,157 2,926 1.0% Wholesale Trade 130,929 125,182 5,746 4.4% Retail trade 388,318 368,531 19,787 5.1% Transportation & Warehousing 105,587 100,548 5,040 4.8% Information 109,896 63,842 46,053 41.9% Finance & insurance 157,473 146,127 11,345 7.2% Real estate & rental 173,389 159,652 13,737 7.9% Professional, scientific & tech services 289,392 260,387 29,005 10.0% Management of companies 35,066 32,547 2,519 7.2% Administrative & waste services 191,098 160,155 30,943 16.2% Educational services 69,006 65,329 3,677 5.3% Health & social services 388,871 367,227 21,644 5.6% Arts, entertainment & recreation 86,698 80,538 6,160 7.1% Accommodation & food services 246,712 229,867 16,845 6.8% Other services 183,321 172,353 10,968 6.0% Government & non NAICs 613,440 600,260 13,179 2.1%

Total Impact represents the sum of the direct, indirect and induced impacts. Sources: Microsoft, IMPLAN, WA Office of Financial Management (employment: http://www.ofm.wa.gov/trends/economy/fig103.asp as obtained from the US Bureau of Economic Analysis “wage and salary employment (number of jobs)”), and author’s calculations.


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Major Findings II.2: Microsoft’s Total Impact on State Income

• Gross State Product. Gross State Product (GSP), like its national counterpart Gross Domestic Product (GDP), is the broadest measure of economic activity in a state. In 2011, Washington GSP was $350 billion. Microsoft accounted for $34 billion, or 9.8 percent of Washington State’s GSP.

• Labor Income. Microsoft generated $19.3 billion in labor income in Washington State, which is 8.8 percent Washington State’s total labor income (employee compensation plus proprietor income).

Microsoft’s employment impact represented 8.0 percent of the 3.05 million jobs in the state. The impact on Washington employment due to Microsoft’s hiring, employee compensation, and goods purchased is captured by the employment multiplier. The Microsoft employment multiplier was 6.02 (=242,966/40,309) in 2011, implying that each Microsoft job generated 5 additional jobs in the local economy. The Microsoft employment multiplier has been increasing steadily over time to reflect the company’s rapid growth in the state. In 1996, the Microsoft employment multiplier was 4.4 and by 2004 it had grown to 5.1, since then it remained stable at about 6.

The Microsoft employment multiplier is significantly greater than those found for other industries in Washington State. Regional employment multipliers typically range between 2 and 4. Microsoft’s employment multiplier is unusually large because a dollar of employee compensation typically has a greater impact on the economy than a dollar of in-state purchases. The largest share of Microsoft’s expenditures in the state was employee compensation. In addition, Microsoft pays above average compensation and its purchases per employee are high.

Major Findings II.3: Microsoft’s Total Impact on Employment

• 242,966 workers in the state of Washington were directly or indirectly supported by Microsoft’s operations. Microsoft’s jobs impact was due to its direct impact of 40,309 jobs, plus the additional 202,657 jobs created by the indirect and induced multiplier effects. Microsoft’s employment impact represents 8 percent of the 3 million jobs in the state.

• The Microsoft employment multiplier was 6 in 2011, implying that for every Microsoft job the company supported 5 additional jobs Washington economy. Microsoft’s employment impact grew rapidly in the 1990s to the mid 2000s. Since then it has remained stable and provides crucial support to soften the impact of the great recession.


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In terms of sector-level contributions, Microsoft had the greatest jobs impact on the information industry in Washington State. About 42 percent of all information sector employment in Washington State is directly or indirectly supported by Microsoft. Other service sectors also feature a profound Microsoft impact: retail trade, professional and scientific services, administrative services, and health services of over 20,000 employees. Additionally, substantial impacts can be observed in the finance and insurance sector, real estate, accommodation and food services, other services, and the government sector. These sectors all experienced increases in employment that exceeded 10,000 jobs due to Microsoft’s operations in the state.

Impact on Employment and Income Growth in Washington State Due to its rapid expansion, Microsoft’s has seen an eight-fold increase in its employment impact over the past 19 years (as percent of total employment, see Figure 5). In 1990, the company employed 4,000 people in Washington State and indirectly supported another 21,270 jobs. Altogether this amounted to 0.9 percent of the state’s 2.4 million jobs at the time. Twenty one years later, after adding 36,309 jobs to its Washington payroll, the number of jobs Microsoft supported directly and indirectly in the state accounted for 8 percent of state employment.

Figure 5

MICROSOFT IMPACT ON WASHINGTON STATE EMPLOYMENT OVER TIME

Percent of Total Employment

1990 1992 1994 1996 1998 200 2002 20040.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2006 2008


1990 1992 1994 1996 1998 2000 2002 20040.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2006 2008 2010


1990 1992 1994 1996 1998 200 2002 20040.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2006 2008


1990 1992 1994 1996 1998 2000 2002 20040.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2006 2008 2010

Source: Microsoft (previous Microsoft impact analyses), author’s calculations, 2010 value interpolated.


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Microsoft’s own growth has had not only a profound impact on the number jobs supported in the state. It also changed the rate of growth in which jobs expanded in the state over the past 21 years. From 1990 to 2011, Washington employment expanded at an average annual compounded growth rate of 1.25 percent, while Microsoft’s employment grew at 11.63 percent.

Taking into account Microsoft’s total impact on the economy, Table 7 shows that the company generated a total of 217,696 new jobs between 1990 and 2011. Microsoft thus accounted for 31.1 percent of the state’s total job gain, and the company has been the single largest contributor to Washington’s employment growth since 1990. Gross State Product increased $151 billion over that period and 21.5 percent of that increase can be directly attributed to Microsoft’s expanding operations. Microsoft’s growth contribution is similar when calculated with 1995 as the starting date. From 1995-2011 the employment impact larger because Microsoft employment and expenditures grew relatively faster than state employment and income post 1995, compare to pre 1995.

Table 7

MICROSOFT’S IMPACT ON GROWTH IN WASHINGTON STATE 1990/5-2011 (2011 dollars)

Since 1990 Since 1995 Change

since 1990

Change due to

Microsoft since 1990

Percent of WA

change due to

Microsoft

Change since 1995

Change due to

Microsoft since 1995

Percent of WA

change due to

MicrosoftGross State Product (Millions $) $151,022 $32,470 21.5% $125,580 $31,174 24.8% Employment 700,113 217,696 31.1% 502,556 $199,436 39.7%

Source: Microsoft, Washington State Office of Financial Management, author’s calculations.

Major Findings II.4: Microsoft’s Impact on Growth in Washington State

• From 1990 to 2011, Washington State employment increased by over 700,000 workers and 31 percent of this increase is due to Microsoft’s expanding operations. Since Microsoft’ s operations in Washington State increased markedly after 1995, nearly 40% of the state’s 1995-2011 job growth can be attributed to the increase in Microsoft’s own operations and to the jobs that Microsoft supports. (Table 7)

• Through its Washington State purchases, its employment and wage compensation, as well as the indirect multiplier effect that these expenditures exert on the economy, Microsoft supported more than 20% of the state’s income growth from 1990-2011.


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CONCLUSION

Microsoft expanded its operations in Washington State rapidly since the 1980s, and from 1990 to 2011 the software company added over 36,000 jobs in the state, providing a vital boost to state employment and output. Directly and indirectly, Microsoft accounted for over 30 percent of Washington’s employment growth since 1990 (Table 7).

The increase in Microsoft’s economic impact on the Washington State economy since the 1990s is directly linked to the company’s

1) increase in employment from 4,000 in 1990, to 40,309 in 2011, 2) increase in gross wage compensation from $0.87 billion in 1995 to $7.50 billion

in 2011, 3) increase in purchases of local goods and services, which grew from $0.98 billion

in 1995 to over $2.55 billion in 2011.

As a consequence, Microsoft’s employment impact also increased from 1.4 percent of total Washington employment in 1990, to 5.4 percent in 2004, and to 8 percent in 2011.

While these figures are impressive, they do not adequately describe the full impact of Microsoft on the Washington State economy. Unlike any other company in Washington’s past, Microsoft has created immense wealth in the community, not only for its executives, but also for its employees and shareholders in the area. Like a magnet, Microsoft has drawn other software and high-tech companies to the region and is directly and indirectly linked to a number of prominent startups. Some information technology companies have been attracted to the region to collaborate with Microsoft, while others have located in the state to take advantage of the large pool of skilled workers that has been attracted to the region. Finally, a sizable number of current and former Microsoft employees employ their expertise to support both startup enterprises as well as charitable foundations in the area. These organizations have been exerting a significant financial and socioeconomic impact on the region that is also not measured by this impact study.

The Microsoft Economic Impact Study 2011 | Impact

29

PART III: Impact Summary For Selected States, 2011

California

TABLE A3 TOTAL IMPACT OF MICROSOFT ON THE CALIFORNIA ECONOMY, 2011

(Microsoft’s CA Establishments’ Operations and Expenditures on CA Goods/Services)

With Without Total Impact

% of Microsoft Microsoft CA TOTAL IMPACT ON INCOME & EMPLOYMENT Gross State Product (Millions $) $1,951,349 $1,948,615 $2,734 0.14% Labor Income (Millions $) $1,208,172 $1,206,482 $1,690 0.14% Total Employment 19,552,319 19,531,536 20,783 0.11% TOTAL IMPACT ON EMPLOYMENT BY SECTOR Ag, Forestry, Fish & Hunting 424,421.56 424,352 70 0.02% Mining 57,606.27 57,592 14 0.02% Utilities 60,068.67 60,038 31 0.05% Construction 899,942.82 899,800 142 0.02% Manufacturing 1,314,588.75 1,314,211 377 0.03% Wholesale Trade 723,999.19 723,576 424 0.06% Retail trade 1,925,135.21 1,923,657 1,478 0.08% Transportation & Warehousing 574,140.25 573,707 433 0.08% Information 501,308.06 498,189 3,119 0.62% Finance & insurance 1,016,694.30 1,015,666 1,028 0.10% Real estate & rental 1,018,038.96 1,017,047 992 0.10%

Professional, scientific & tech services 1,780,392.71 1,775,875 4,517 0.25%

Management of companies 211,767.30 211,539 228 0.11% Administrative & waste services 1,266,384.99 1,262,966 3,419 0.27% Educational services 426,345.83 426,025 321 0.08% Health & social services 1,886,101.94 1,884,608 1,494 0.08% Arts, entertainment & recreation 519,951.28 519,518 433 0.08% Accommodation & food services 1,410,439.28 1,409,099 1,341 0.10% Other services 1,057,659.33 1,056,875 784 0.07% Government & non NAICs 2,477,332.08 2,477,194 139 0.01%

Sources: Microsoft, IMPLAN, and author’s calculations.

The Microsoft Economic Impact Study 2011 | Impact

30

New York State

Table A4 TOTAL IMPACT OF MICROSOFT ON THE NEW YORK ECONOMY, 2011

(Microsoft’s NY Establishments’ Operations and Expenditures on NY Goods/Services)

With

MicrosoftWithout

Microsoft Total

Impact % of

NY TOTAL IMPACT ON INCOME AND EMPLOYMENT Gross State Product (Millions $) $1,171,065 $1,169,940 $1,125 0.10% Labor Income (Millions $) $753,443 $752,649 $794 0.11% Total Employment 11,084,101 11,074,945 9,156 0.08% TOTAL IMPACT ON EMPLOYMENT BY SECTOR Ag, Forestry, Fish & Hunting 59,675 59,659 16 0.03% Mining 13,252 13,248 4 0.03% Utilities 38,355 38,333 22 0.06% Construction 491,718 491,637 81 0.02% Manufacturing 478,859 476,084 2775 0.58% Wholesale Trade 357,825 357,623 201 0.06% Retail trade 1,053,289 1,052,710 579 0.05% Transportation & Warehousing 339,654 339,474 181 0.05% Information 289,663 288,812 850 0.29% Finance & insurance 822,349 822,078 271 0.03% Real estate & rental 531,005 530,740 265 0.05% Professional, scientific & tech services 888,194 887,174 1020 0.11% Management of companies 144,061 143,969 92 0.06% Administrative & waste services 557,177 556,284 893 0.16% Educational services 401,844 401,685 159 0.04% Health & social services 1,547,462 1,546,725 737 0.05% Arts, entertainment & recreation 299,704 299,565 139 0.05% Accommodation & food services 700,788 700,294 494 0.07% Other services 560,921 560,625 296 0.05% Government & non NAICs 1,508,307 1,508,227 80 0.01%

Sources: Microsoft, IMPLAN, and author’s calculations.

the 2011 microsoft economic impact study

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